Chronic Fatigue Economy We borrowed $5 trillion and all we got was this lousy 1.7% growth. .

The economy plowed ahead at a 2% growth rate in the third quarter, which thrilled more than a few of our liberal friends who think it's enough to re-elect President Obama. We'll soon find out if they're right, but there's no doubt their prosperity standards are slipping. In the third quarter of 1992, growth came in at 4.2% (3.4% for the year) and Democrats called it a catastrophe.

The third-quarter figure means that growth for the first nine months of 2012 has been a paltry 1.7%. That's slower than last year (1.8%), which was slower than the year before (2.4%). The current recovery has had only two quarters, but not a single year, with growth above 3%.

As problematic is where the growth came from and where it has gone missing. Consumer spending provided the most lift, perhaps helped by the asset burst inspired by the Federal Reserve's money printing. If Mr. Obama is re-elected, he should buy dinner for Ben Bernanke and the Fed Governors for their in-kind political contributions. The problem is that consumers can't continue to spend if the overall economy doesn't grow fast enough to raise incomes faster than it is.

The other big third-quarter growth driver was federal government spending, which rose 9.6%. Overall government outlays rose 3.7% and accounted for about 0.7 percentage points of the 2% overall GDP increase. Economist David Malpass calculates that growth in private output was closer to 1.3%. So much for the private economy "doing fine" and the government slumming for dollars.

An even bigger worry is that private investment tanked in the quarter. Non-housing related investment contracted by 1.3%. Housing did rally thanks to new home construction. But the decline in business investment at this stage of a recovery signals a capital strike and a return to pessimism. Business investment is a leading indicator of future job and wage growth.

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Traders on the floor of the NYSE on Friday.Comparing this recovery from the bottom in June 2009 with previous rebounds continues to be very unflattering to Mr. Obama. Republicans on the Joint Economic Committee report that the typical growth rate at this stage of the previous nine recoveries (13 quarters) averaged 16.8%, and 19.6% in the Reagan expansion. The figure for this recovery is a meager 7.2%. That's about $1.2 trillion in foregone output. The budget deficit would be half as large today if this were a normal expansion.

The question is whether there is a reason to expect better in 2013. It's hard to see the investment outlook brightening when Democrats want to raise taxes on investment (capital gains and dividends). Higher tax rates (to 41% from 35%) on small businesses and subchapter S firms won't help hiring. The National Association of Manufacturers says its members will shed factory jobs next year if Washington jumps off the tax cliff, and until recent months manufacturing has been one of the economy's few bright spots.

So this is the dreary tale of Obamanomics: Keep borrowing more than $1 trillion a year and keep the Fed printing money at historic levels, in return for mediocre growth and stagnant incomes. The alternative is to stop punishing the employers, investors and workers who are the real source of growth. The Romney plan to cut tax rates, reform the tax code, restrain spending and repeal ObamaCare would be a good start.

Mr. Obama will spend the next 10 days trying to persuade voters that 1.7% growth is the best we can do. If he's re-elected, he's probably right.

Department of Cronyismfrom Reason Magazine by David HarsanyiYou know what could really help the economy? A huge new bureaucratic department in Washington, that’s what.

President Barack Obama, a man who recently asserted that the “free enterprise system is the greatest engine of prosperity the world’s ever known,” intimated that once he secures a second term in office, he would appoint a Secretary of Business to manage a newly-merged, but still unnamed, agency that would offer Americans that top-down guidance they never asked for—a homeland security for cronyism, if you will.

“We should have one Secretary of Business, instead of nine different departments that are dealing with things like giving loans to SBA or helping companies with exports,” Obama explained in an interview with MSNBC’s “Morning Joe.” “There should be a one-stop shop.”

The Department of Business promises to do to business what the Department of Education has done for education. It’s the sort of idea that sounds like it adds efficiency but actually offers the opposite. The larger context of the idea comports well with the president’s belief that a healthy private sector is healthiest when relying on the dedicated technocrats.

But as a political matter, it promises results. If Mitt Romney, for instance, loses the election over Ohio and the president’s auto bailouts, a handout that allegedly saved one in eight jobs in the Buckeye State, politicians will surely have re-learned an invaluable lesson: the more taxpayer money you spend, the more votes you earn.

And if winning elections means funding busy work at a union-run money pit or keeping a pleasing sunflower-logoed company afloat via a stimulus package, imagine what an entire agency giving out favors could accomplish? On the surface, a consolidation of a bunch of agencies sounds like a bright idea, but there is, as you know, plenty of room for mission creep in the pretending-to-do-good business. With 54 former lobbyists (according to Timothy Carney of the Washington Examiner) in the Obama Administration, it, no doubt, has a keen sense of what the business world is looking for — handouts.

But the most obvious pitfall of a Council for Mutual Economic Assistance, or whatever it’ll be called, is that it would further institutionalize the absurd notion that government can foresee what consumers desire and then “invest” accordingly. When Obama talks about “jobs of the future” he means jobs the government will subsidize because people who vote for him like the sound of it. The more they fail, the more it will have to “invest.” It’s not about what you want, it’s about you need.

If the Obama Administration was an investment house, it would have tanked long ago. Its record on green energy is horrid. It has heaped federal loans and subsidies onto coal-powered electric cars—an “investment” that “will not only reduce our dependence on foreign oil,”Obama said in 2009, but “put Americans back to work.” Hardly. The Chevy Volt’s been a tepid seller, at best, and without taxpayer subsidizes few could afford a $100,000 compact car. Toyota, the world’s largest carmaker, has stopped mass production of a new sub-compact iQ plug-in. Toyota executive Takeshi Uchiyamada recently explained that, “current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars run, or the costs or how it takes a long time to charge.”

Does government care if ethanol or a windmill meets society’s needs? Does it care about cost? Uchiyamada risks stockholder investments—real investments—while politicians’ decision-making rests on political and ideological pressures. So how could a Department of Business be a good idea?

"If Congress and the Obama administration allow scheduled tax increases and spending cuts to occur, the economy will shrink by 0.5 percent in 2013. The unemployment rate would soar to 9.1 percent — up from 7.9 percent today."

Where do they come up with this stuff? (More famous people caught reading the forum.)

Great post! I agree with this point: "The likelihood that China would suddenly reduce its holdings of U.S. securities is questionable because doing so could have a significant negative impact on the Chinese economy."

I believe anything they could do to harm the US economy would harm them far worse, economically and politically. Still the artificial nature of the imbalance is unhealthy. We can't control their policies but on our side should make US businesses and US manufacturing more competitive would slow the outflow of dollars invested back. Balancing our budget and end federal borrowing. And end the dual mission of the Fed and allow interest rates to reach normal levels at a balance between savings and borrowing. Right now savers earn zero and people are learning not to save.

And, if I am informed correctly, the US backed England, France, and Israel off from retaking the Suez Canal in 1956 by threatening to dump British war bonds , , ,.

Good point if true. The difference in my opinion is the level of dependency. Their sputtering economic engine is dependent upon continued exports to the US - at these levels. A huge move in the currency would be disruptive to exports, to their economy and perhaps to the regime. A disruption or cost increase in imports from China to the US would hurt consumers but could lead to production, manufacturing and jobs increases at home. A jump in interest rates here would have a mixed effect as well, cause some pain but force some corrections and increase our savings rate.

Perhaps we should take this to the US-China thread, but for the moment I would note that the fascist system of China, facing the issues that it does (including an excess of young males) with the savings rate that it has and the pent up internal demand that it has, and having an economy with the bubble-like characteristics that it does, could well be tempted to embark on aggressive courses of action.

Guilty as charged on morphing the conversation - with seamless transitions.

With another morph I take off from a good point Bigdog made on the tax policy discussion: "the effectiveness of the positions you extol [tax rate cuts determine prosperity] is not as cut and dry as you believe". True! Tax rate cutting alone is not supply side economics and does not in itself equal a positive, productive climate.

Mentioned in a previous discussion, I think it was George Will who said:

"George Bush gave Supply Side Economics a bad name - without ever trying it."

Looking at why tax policy isn't the whole answer requires a look at the other factors. George Bush implemented two rounds of tax rate cuts that inspired enormous growth in the economy. That growth included 52 consecutive months of job growth and almost balanced the budget, but it did not sustain itself beyond that. Why not? Bush got everything else wrong:

1) Government spending is in itself a tax on the economy. To the extent that it is excessive, it is taking resources including people away from their most productive use. Spending went way up under Bush. The need for government spending should have been going down in an environment where almost anyone who wants a private sector job could get one. That opportunity was squandered.

2) Programs that last forever and keep growing. Bush made a try at major reform of social security. For better or worse he failed. He also failed to seek or win any minor reforms. Meanwhile he started another major new entitlement and other big programs without ending or curtailing any existing ones. His predecessor said "the era of big government is over." Not so, not even with a Republican President, House and Senate. Programs have value but again the excesses are a load acting to slow the economy.

3) Regulatory climate: Democrats primarily were the builders of the vastly exploding regulatory climate in this country. Republicans were the willing co-conspirators, repealed essentially none of it when given the chance, then kept adding regulations at roughly the same pace. (Obama has been even worse.) Regulations today are perhaps a bigger 'tax' on the economy than all taxes combined.

4) Energy policy, overlaps regulatory climate. Bush Directed Cheney to come up with a comprehensive plan. Criticism of the secretive nature of his hearings probably destroyed all the possible positive perceptions of the plans but essentially none of it got done. We can update the details on the energy threads, but no new nuclear plants, no new refineries, federal lands and offshore not really opened, never won the case for ANWR and no big improvements to the grid (to my knowledge). Energy became a bigger cost and uncertainty holding back growth.

5) Healthcare. Not bringing back any economic freedom or market sense into healthcare set the table for the argument that government should takeover.

6) Housing! There were some Republicans sounding the alarm, but Republicans in congress and Bush in the White House in particular let a runaway train wreck keep rolling with no awareness that what they were doing was fundamentally wrong and dangerous. Allowing federal control to reach 90% is a violation of common sense and all free market, conservative, and supply side principles. Not everyone was financially ready to own a house and subsidized is the opposite of affordable. Screwing up private markets and resource allocation is the opposite of what a growth policy should be.

7) Monetary policy. It was a tightening of money, not easing that accompanied the Reagan years. The easing that grew out of the 2001 recession and the 9/11/2001 aftermath had no business continuing into a multi-decade blunder where we don't even pretend to hold up our currency or allow interest rates to reach equilibrium levels. Not all Bush's fault but they got their way with the Fed and it backfired.

8 ) State and local taxes. Not Bush's fault but as the states and locals ate up the difference on taxes, the tax rate cut advantage slipped away. For one thing, states tax capital gains as ordinary income so the low federal rate is not low in total if you live most of America.

9) Corporate tax rate becoming highest in the world. These embedded taxes don't show in the individual rates and they still have not been reformed.

10) mis-Communications. For the things that Bush was able to do right economically he was always unable or unwilling to communicate them to the people. Since he didn't understand what he was doing right, he was not likely to notice that what he was saying was wrong. Of tax rates cuts, all he could say was that you get to keep more, missing the whole supply side point of improving the incentives to produce and improved competitiveness will increase national income and revenues to the Treasury. Just keeping more money out of a fixed paycheck is what a demand side tax cut will do. A Keynesian stimulus like dropping dollars from the sky does not stimulate production here if the goods are made in China.

Between all these factors, easy money mortgages with equity lines up to zero equity ownership at bubble level housing prices with financial institutions at risk and taxpayers holding the tab, while becoming a nation of zero savings, unable to withstand a downturn, and never having a sense of purpose communicated of how economic freedom makes us more innovative and competitive in a dynamic world and tax incre3ases coming led to bubble and collapse. All these factors except for tax rate cuts were anti-supply-side policies. Failure on the Republican side led to us voting in the policies of decline, setting the stage for the collapse and stagnation that erased of the gains.

After all that failure, we get to hear forever that we tried the Bush tax cuts (the only thing we did right) and look where it got us.

If our proposals and our record included real progress on all of the above, then I would disagree with the point, "the effectiveness of the positions you extol is not as cut and dry as you believe."

Wesbury warned a year or so ago that although we are badly mis-managing our economy, the American economy has enough resilient and strength that growth will recover enough that Republicans will have to more in the campaign than just rely on failed results.

The Commerce Department has upwardly revised third-quarter real GDP to 3.1 percent. Previously, third-quarter growth was reported as 2.7 percent. With this revision, the third quarter of 2012 becomes the strongest quarter of the year and the third strongest since the economy began picking up in the summer of 2009.

As James Pethokoukis suggests, the increasing strength of the economy during this summer likely played a significant role in President Obama’s reelection.-----

Growth is half of what it should be, but it turns out thought that we didn't want a better economy than this. It would screw up 'fairness'.

I would repeat my previous comments that the impending tax cliff may well have added to that as some activity was taken earlier than it might otherwise have been in order to be taxed at current rates instead of future higher tax rates.

This is the Monday Morning Outlook for the week of Dec 24th, 2012. Because Monday is Christmas Eve, we are sending it on Friday afternoon. Merry Christmas from the First Trust economics department!The Bible story of the virgin birth is at the center of much of the holiday cheer at this time of the year. The book of Luke tells us Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was “no room for them in the inn.”Over the centuries, people have come to believe that because Jesus was born in a stable, and not in a hotel room, Mary and Joseph must have been mistreated by a greedy innkeeper. This innkeeper only cared about profits and decided the young couple was not “worth” his best accommodations. We have heard this narrative of the Christmas story repeated many times in plays, skits and sermons.This narrative persists even though the Bible records no complaints at the time and there was apparently no charge for the use of the stable. It may be that the stable was the only place available. Bethlehem, like other small towns, was overflowing with people who were forced to return to their ancestral homes for the census - ordered by the Romans for the purpose of levying a tax.If there was a problem, it was caused by the unintended consequences of this government policy. But this source of the problem has been ignored in favor of a more palatable complaint, that capitalism and capitalists are greedy, uncaring, and maybe even evil.But a different narrative makes even more sense. The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. A facility he was able to offer, while the government officials who ordered the census slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.If you must find “evil” in either one of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate.And this is why it’s important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would “fix” the problem.But this new law would also have unintended consequences. Fewer investors would back hotels because the cost of complying with the regulation would reduce the return to that investment. A hotel big enough to handle the rare census, would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. Government would then try to regulate prices.This does not mean free markets are perfect or create utopia, they aren’t and they don’t. But, business can’t force you to buy a service or product. You have a choice – even if it’s not exactly what you want. And good business people try to make you happy in creative and industrious ways.Government doesn’t always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can’t leave. And just in case you try, armed guards will help you think things through.This is why the framers of the US Constitution made sure there were “checks and balances” in the system of government authority. In all the budget negotiations we have witnessed lately, and all the negotiations still to come, we are seeing that system operate. So, too, with continued legal and political challenges to the health reform bill passed back in 2010.Neither free market capitalism, or the checks and balances of the Constitution are like having a true Savior. But they should give us all reason to hope for a better world in the years ahead.(If you think you’ve read this before, you’re right! This week’s Outlook is very similar to what we have written the same week during the past three years.)

This chart illustrates our current situation. It shows how there is growth without recovery. It shows the cost over time in the trillion of accepting this anemic, new economic normal. The gap shows that investment moved away from production and stayed away. Jobs were lost, paychecks lost, output, consumption, personal savings and wealth all lost, and of course - lost revenues to the Treasury.

The area between the lines is the boat anchor effect of our misguided economic policies.

Unfortunately, considering the spineless/clueless nature of the Republican "leadership" in Congress, I have ZERO confidence that what must be done will in fact be fought for by the Republicans. I think a financial collapse is inevitable before the American people wake up and demand better than what we are getting from our pathetic representatives. See below:

The tax battle is over. Democrats, President Obama and their media cheerleaders succeeded in getting a nervous and divided Republican Party to acquiesce to a bitter bargain. They allowed taxes to rise, while getting almost nothing in return in terms of spending cuts, other than vague promises to be fulfilled sometime in the future. Given the tenor of the times — with entitlement mentality run amok, our spendthrift president’s reelection in November, and the certainty that anything short of capitulation would have been framed by the media as a Republican-created debacle — perhaps it was the only reasonable course of action Republicans could take right now. In the upcoming and far more serious battle over the debt ceiling, Republicans must unify for the simplest of reasons: either they extract serious spending cuts from Democrats and the Obama administration in exchange for raising the debt ceiling — or the nation is headed for fiscal collapse.

Republicans desperately need to educate Americans about our current trajectory. In the last four years, the national debt has increased by more than $5 trillion, including $2.1 trillion of additional debt accumulated since August 2011, when the debt ceiling was raised from $14.3 trillion to $16.4 trillion. Thus, a mere seventeen months later, America technically went bankrupt again on New Year’s Eve. This means that until further credit is authorized by the House in the form of raising the debt ceiling – again – Treasury Secretary Tim Geithner will have to move money around in federal accounts, a process he claims will buy us about two more months before technical bankruptcy becomes genuine bankruptcy.

Now one might think that our runaway freight train of deficit spending would have chastened our elected representatives. One would be completely and utterly wrong. Despite the great fiscal cliff “victory” being touted by Democrats and their media enablers, the Congressional Budget Office (CBO) revealed that the heart of that victory, raising taxes on wealthy Americans, is little more than emotional boob bait for the masses: as a result of the deal, $3.9 trillion will be added to the national debt over the next ten years, bringing us up to more than $20 trillion.

Unfortunately and incredibly, this is small potatoes compared to America’s unfunded obligations. Christopher Cox, former chairman of the House Republican Policy Committee and the Securities and Exchange Commission, and Bill Archer, former chairman of the House Ways & Means Committee, reveal the true scope of America’s problem in a Wall Street Journal article. “The actual liabilities of the federal government–including Social Security, Medicare, and federal employees’ future retirement benefits–already exceed $86.8 trillion, or 550% of GDP,” they write.

Yet the most important part of the article addresses the reality of taxation. “When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually…Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon,” they warn (italics added).

In response to this reality, our intrepid president and his party have brought their teaspoons to the battle. Even as the fiscal cliff deal was on the cusp of being made, Obama insisted that the one atom of relative sanity, the spending cuts mandated by sequestration, conveniently kicked down the road for another two months, were a bridge too far. “We’re using an axe instead of a scalpel,” he contended. For perspective’s sake, it should be noted that the total amount of spending scheduled to be “axed,” absent the further whittling that will more than likely occur when the political class inevitably reprises its lament regarding “draconian cuts,” comes to $1 trillion over ten years.

Such unseriousness, courtesy of reckless Democrats and, in some respects, spineless Republicans, is precisely what brought the nation to the brink of insolvency. If one compares the minuscule level of cuts deemed “draconian,” with the gargantuan and growing level of spending that is somehow “manageable,” as long as the “rich” pay their “fair share,” only one logical, if painful, conclusion can be reached:

Despite their past culpability, either Republicans stand firm, take control of the federal spending debate immediately and endure the coordinated and massive attacks that are sure to accompany any effort to bring the nation’s spending addiction under control, or the country will face dire consequences.

Such attacks have already begun. Huffington Post columnist Jason Linkins refers to debt ceiling “hostage takers” who are “dangerous psychopaths, full stop.” House Democrat Whip Steny Hoyer (D-MD), who must have missed the memo regarding over-the-top language, referred to Republicans seeking to leverage the debt ceiling as “somewhat like taking your child hostage and saying to somebody else, ‘I’m going to shoot my child if you don’t do what I want done.’” Sen. Max Baucus (D-MT) chairman of the Finance Committee, was less incendiary, but equally unrealistic. ”It’s anachronistic,” he said. “We’ve already voted on spending and revenue, and so the debt ceiling is just a confirmation of what we voted on.”

Baucus is disingenuous at best, and an outright liar at worst. Over the course of the last three and a half years, House Republicans have sent budget proposal after budget proposal to the Democratically-controlled Senate. Every one of them has died without a vote. Despite being required by law to do so, the Senate has not only failed to pass a budget in those same three and a half years, they failed to even draft one in 2011 or 2012. The House also passed a bill in October to avoid the fiscal cliff, and Democrats not only tabled it, but sent out Chuck Schumer to warn Republicans that any attempt to reform the tax code in 2013 would be completely resisted, because the idea is “obsolete.” Democrats have been so irresponsible, even MSNBC’s Joe Scarborough noticed. Senate Democrats are “negligent” and “cynical” because “they don’t want the American people to know what their priorities are,” he contended.

Democrat priorities are painfully obvious. They wish to grow the size and scope of government, and the costs of doing so are irrelevant.

As far as the president is concerned, the Constitution may be irrelevant as well. On New Year’s day, Obama warned Republicans that he intends to raise the debt ceiling unilaterally. “I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills, they have already racked up through the laws they have passed,” he said.

He continued. “Let me repeat, you can’t not pay bills that we have already incurred,” he said. “If Congress refuses to the United States government the ability to pay these bills on-time, the consequences for the entire global economy would be catastrophic–far worse than the impact of a fiscal cliff. People will remember back in 2011, the last time this course of action was threatened, our entire recovery was put at risk. We can’t go down that path again.”

U.S. News and World Report editor-in-chief Mort Zuckerman illuminates the president’s preferred path. “If you constantly live beyond your means by increasing your credit card balance and bank borrowing, eventually your debt rises to a level where all you are doing is paying the interest on your credit cards and loans…This is what is facing the United States. Unless we make changes, by 2055 interest costs will be the only thing that the United States will be able to pay for with available revenues and resources,” he writes.

And that’s assuming we make it that far. Any remaining daylight between now and the ultimate day of reckoning is predicated on the reality that the rest of the world still believes American is not a deadbeat nation. Americans have virtually no clue how fast things can change once investors lose confidence in our ability to get our fiscal act together. In 2012, the interest alone on the current level of debt was almost $360 billion — financed at record-low interest rates. If rates return to their historic norms, those payments could double in a New York minute. Adding more debt would raise them still higher. In other words, America could be facing a future where more than a trillion dollars is spent — on absolutely nothing other than interest. Yet somehow any attempt by Republicans to draw a line in the sand amounts to hostage-taking of children by dangerous psychopaths engaged in anachronistic and obsolete endeavors.

That’s the kind of rhetoric to which Republicans will be subjected in the coming two months. If they have an ounce of integrity left, they will come to realize that taking a rhetorical beating may be difficult to endure. But that is far better than acting as willing accomplices in bankrupting the nation.

Logged

"You have enemies? Good. That means that you have stood up for something, sometime in your life." - Winston Churchill.

Like the inequality drivel, the contention that the middle class has stagnated for 3 decades is false in 3 ways. Yet Pres. Obama and his mentors want to bet the economy on the failure of economic growth to reach the middle class.

1) CPI calculations are false, static, don't account for people making different choices in different scenarios. "CPI overestimates inflation by underestimating the value of improvements in product quality and variety."

2) Income data doesn't include all income, such as untaxed benefits. "...this wage figure ignores the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions, paid leave and the rest now amount to an average of almost 31% of total compensation for all civilian workers according to the BLS."

3) the average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades.

On that third point in particular I have tried to explain, when you add one job at the bottom in times of prosperity and growth, all other things equal, Median income just declined. But no one is worse off. More likely everyone is better off.-----------

Donald Boudreaux and Mark Perry: The Myth of a Stagnant Middle ClassHousehold spending on food, housing, utilities, etc. has fallen from 53% of disposable income in 1950 to 32% today.

By DONALD J. BOUDREAUXAND MARK J. PERRY

A favorite "progressive" trope is that America's middle class has stagnated economically since the 1970s. One version of this claim, made by Robert Reich, President Clinton's labor secretary, is typical: "After three decades of flat wages during which almost all the gains of growth have gone to the very top," he wrote in 2010, "the middle class no longer has the buying power to keep the economy going."

This trope is spectacularly wrong.

It is true enough that, when adjusted for inflation using the Consumer Price Index, the average hourly wage of nonsupervisory workers in America has remained about the same. But not just for three decades. The average hourly wage in real dollars has remained largely unchanged from at least 1964—when the Bureau of Labor Statistics (BLS) started reporting it.

Moreover, there are several problems with this measurement of wages. First, the CPI overestimates inflation by underestimating the value of improvements in product quality and variety. Would you prefer 1980 medical care at 1980 prices, or 2013 care at 2013 prices? Most of us wouldn't hesitate to choose the latter.

Second, this wage figure ignores the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions, paid leave and the rest now amount to an average of almost 31% of total compensation for all civilian workers according to the BLS.

Third and most important, the average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades. Precisely because the U.S. economy was flexible and strong, it created millions of jobs for the influx of many often lesser-skilled workers who sought employment during these years.

Since almost all lesser-skilled workers entering the workforce in any given year are paid wages lower than the average, the measured statistic, "average hourly wage," remained stagnant over the years—even while the real wages of actual flesh-and-blood workers employed in any given year rose over time as they gained more experience and skills.

These three factors tell us that flat average wages over time don't necessarily support a narrative of middle-class stagnation. Still, pessimists reject these arguments. Rather than debate esoteric matters such as how to properly adjust for inflation, however, let's examine some other measures of middle-class living standards.

No single measure of well-being is more informative or important than life expectancy. Happily, an American born today can expect to live approximately 79 years—a full five years longer than in 1980 and more than a decade longer than in 1950. These longer life spans aren't just enjoyed by "privileged" Americans. As the New York Times reported this past June 7, "The gap in life expectancy between whites and blacks in America has narrowed, reaching the lowest point ever recorded." This necessarily means that life expectancy for blacks has risen even more impressively than it has for whites.

Americans are also much better able to enjoy their longer lives. According to the Bureau of Economic Analysis, spending by households on many of modern life's "basics"—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

One underappreciated result of the dramatic fall in the cost (and rise in the quality) of modern "basics" is that, while income inequality might be rising when measured in dollars, it is falling when reckoned in what's most important—our ability to consume. Before airlines were deregulated, for example, commercial jet travel was a luxury that ordinary Americans seldom enjoyed. Today, air travel for many Americans is as routine as bus travel was during the disco era, thanks to a 50% decline in the real price of airfares since 1980.

Bill Gates in his private jet flies with more personal space than does Joe Six-Pack when making a similar trip on a commercial jetliner. But unlike his 1970s counterpart, Joe routinely travels the same great distances in roughly the same time as do the world's wealthiest tycoons.

What's true for long-distance travel is also true for food, cars, entertainment, electronics, communications and many other aspects of "consumability." Today, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past. Consider the electronic products that every middle-class teenager can now afford—iPhones, iPads, iPods and laptop computers. They aren't much inferior to the electronic gadgets now used by the top 1% of American income earners, and often they are exactly the same.

Even though the inflation-adjusted hourly wage hasn't changed much in 50 years, it is unlikely that an average American would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today's cornucopia of modern electronic goods—for the same real wages but with much lower fringe benefits in the 1950s or 1970s, along with those era's higher prices, more limited selection, and inferior products.

Despite assertions by progressives who complain about stagnant wages, inequality and the (always) disappearing middle class, middle-class Americans have more buying power than ever before. They live longer lives and have much greater access to the services and consumer products bought by billionaires.

Mr. Boudreaux is professor of economics at George Mason University and chair for the study of free market capitalism at the Mercatus Center. Mr. Perry is a professor of economics at the University of Michigan-Flint and a resident scholar at the American Enterprise Institute.

Christina Romer, Timothy Giethner and President Barack Obama told us that if we "invested" these hundreds of billions in "recovery" unemployment would be about 5% by now.

They didn't know the consequences of their own policies, as they broke new leftist, anti-employment ground.

Unemployment ticked up to 7.9% nominal. That translates into 10.8% at the old workforce participation rate. That is the key number to judge the policies, implied by the fact that we were never told these policies would chase 8.5 million out of the workforce altogether.

When things are this bad, you need to look to U6 for a better reading which has been holding steady at 14.4% and includes the underemployed. Translating that for the workforce participation disappearance under Obama, this economy is under-employing this workforce by 19.7%, on a glide path to NEVER recover.

Maybe we have no Krugman types on the Board to engage, but can someone please explain or point to a link to a coherent economic theory that purporting to explain how our current policy and path leads to prosperity.

Trillion a year deficits combined with a no-growth projections forever. Unfunded future liabilities that dwarf the the first 17 trillion of debt. Increases in spending that never end (without total collapse). A commitment from both parties to increase spending and guarantee that the lower 98% will never have to pay for spending they support, including basic life expenses like healthcare for people who make up to 70k. Zero percent interest on savings. Highest corporate taxes on the planet. All encompassing regulations up to the point of requiring a permit to exhale. Investment taxes approaching 100%. Birth rates below replacement levels. An aging population. Men marrying men, women marrying their government for security, families obsolete. Work unnecessary. Disability rates doubling. Food stamp recipients inflating into an obesity epidemic. Pension/retirement funds empty, backed by a bankrupt federal government, which is backed by the QE printing press, backed by nothing but a house of cards. Extreme fiscal stimulus has became status quo, not stimulating anymore, if it ever did. Long term real un/underemployment stuck at 20%. All new policies anti-employment. Lowest business start up rate in history.

The law of holes in 2012-2013 went from 'stop digging' to 'four more years'.

What kind of a load can a plowhorse pull, 200% of its weight? 400% of its weight? Uphill? Into "headwinds"?

I am reminded of David Gordon's word play about "Profiting or being a Prophet".

The simple fact of the matter is that most of us have missed a move of well over 100% in the DOW and Wesbury did not. Indeed, Wesbury pretty much called it and we did not.

We, e.g. Doug's post preceding this one of mine here, have tended more to prophesizing and certainly we are not without ample material in making our case, but IMHO we would be a lot stronger in making our case if we could explain how the hell it is that negative interest rates for years on end are possible. We would be stronger in making our case on taxes if we regularly addressed the substantial decline in fed revenues as a % of GDP as part of the explanation of massive deficits. We would be stronger in making our case if we regularly addressed the extremely positive effects of the natural gas and shale revolutions.

Don't get me wrong, I am clear that we are on a trajectory to disaster-- though I can't tell if it comes slowly or quickly-- but I think in our search for Truth there are ways in which we can do better than we are.

"The simple fact of the matter is that most of us have missed a move of well over 100% in the DOW and Wesbury did not. Indeed, Wesbury pretty much called it and we did not."

As with oil, there is also a dollar inflation component of these increases as well. These indices went up in nominal dollar levels in the context of trillions of dollars injected. Reminds me of housing in 2006. Those who predicted a shoarp correction in that case, saying this couldn't keep going up forever, were wrong for a long time before they were right.

The DOW is not a US index. The stocks of McDonalds, Coca-cola, 3M, Qualcomm, GE, Ford, Dow Chemical, Intel, HP, Merck, T.I., Colgate, Apple all get majority of revenues and revenue growth from overseas. Measure that index with US operations and tell me about the increase. For the wider S&P measure, the foreign component is around 40%. Still these are existing company indices, not showing the failure of this economy to produce new startups. Investing globally has been better than sitting on a declining dollar with zero percent interest at home. To take from that the US is fine (I know you didn't say that) is wrong. That Wesbury (or the gold guys) can show you how to invest around a US stagnation/collapse does not mean US political economy is not faltering badly.

Your freedom to invest in companies from here that can get around US taxes and regulations by freely moving operations overseas is also under assault.

I wish the optimists the best of luck. We are still allowed to keep and reinvest some of the fruits of our labor, about 33% in some cases. The plowhorse will live and plow a little longer eating 33-50%% of its food requirement, but not at full speed and not long without more food coming.

No one knows the future but I say that shifting the car from neutral to reverse means we are likely to move backwards.

"The simple fact of the matter is that most of us have missed a move of well over 100% in the DOW and Wesbury did not. Indeed, Wesbury pretty much called it and we did not."

As with oil, there is also a dollar inflation component of these increases as well. These indices went up in nominal dollar levels in the context of trillions of dollars injected. Reminds me of housing in 2006. Those who predicted a shoarp correction in that case, saying this couldn't keep going up forever, were wrong for a long time before they were right.

The DOW is not a US index. The stocks of McDonalds, Coca-cola, 3M, Qualcomm, GE, Ford, Dow Chemical, Intel, HP, Merck, T.I., Colgate, Apple all get majority of revenues and revenue growth from overseas. Measure that index with US operations and tell me about the increase. For the wider S&P measure, the foreign component is around 40%. Still these are existing company indices, not showing the failure of this economy to produce new startups. Investing globally has been better than sitting on a declining dollar with zero percent interest at home. To take from that the US is fine (I know you didn't say that) is wrong. That Wesbury (or the gold guys) can show you how to invest around a US stagnation/collapse does not mean US political economy is not faltering badly.

Your freedom to invest in companies from here that can get around US taxes and regulations by freely moving operations overseas is also under assault.

I wish the optimists the best of luck. We are still allowed to keep and reinvest some of the fruits of our labor, about 33% in some cases. The plowhorse will live and plow a little longer eating 33-50%% of its food requirement, but not at full speed and not long without more food coming.

No one knows the future but I say that shifting the car from neutral to reverse means we are likely to move backwards.

The trade deficit in goods and services came in at $38.5 billion in December, much smaller than the consensus expected $46.0 billion.Exports rose $3.9 billion in December, while imports fell $6.2 billion. The rise in exports was led by nonmonetary gold, petroleum products and civilian aircraft. The decline in imports was led by crude oil, pharmaceuticals, autos, and computers.In the last year, exports are up 4.9% while imports are down 2.0%.The monthly trade deficit is $13.2 billion smaller than a year ago. Adjusted for inflation, the trade deficit in goods is $4.5 billion smaller than a year ago. This is the trade measure that is most important for measuring real GDP.Implications: The trade deficit came in substantially smaller than the consensus expected in December. Record exports of petroleum products coupled with the lowest crude oil imports in almost sixteen years led to the lowest trade balance since January 2010. As a result, we are now tracking a noticeable upward revision to real GDP growth in the fourth quarter. Last week, the government’s first estimate showed a slight contraction, at a 0.1% annual rate. Based on today’s trade data as well as recent figures on construction and inventories, we now project an upward revision to a +0.7% annual rate. Still, the total volume of US international trade appears to have leveled off over the past several months. A year ago, exports were up 7.4% from the prior year (December 2010 to December 2011); in the past 12 months, exports are up a slower 4.9%. Financial and economic problems in Europe may be playing a role. Exports to the Euro-area are down 2.5% in the past year. Long-term, beneath the headlines, higher energy production in the US due to new technologies is having large effects on trade with other countries. Since 2005, real (inflation-adjusted) oil exports have tripled and reached a new all-time record high, while real oil imports are down 22%. We expect the trade sector will be a small negative for real GDP growth in 2013. This is a normal pattern when the US economy is expanding.

Yes, these shows invite him on as a contrary opinion and shout him down, right while it was going on. I was trying to ask what economic theory supports the idea that what we are doing now leads to anything but collapse. Stomp out savings, stomp out investment, stop out employment, stomp out work. Dilute the dollar, limit revenues, explode expenses and liabilities, then ask: what could possibly go wrong?

I don't think Shiff is an optimist now (understatement). But also he is no expert on the timing and magnitudes of collapses. No one is.

Crafty, Your point is valid. Looking backward is necessary in the search for lessons to learn. But the rear view mirror is not the best consideration moving forward. Those who are in stocks right now, in the face of so many negative factors, should have a strategy to get out quickly as well.

I recall laughing in Jan 2000 and showing charts around of the phenomenal returns from 1999, wondering why I didn't have more in Qualcomm that went up 2400% and JDSU that went up over 1000% and had a billion in the bank. This was real and nothing could stop it - we thought - even without real earnings. Looking backward did not tell you what was in front of you. Harsh, unbiased analysis might have. NASDAQ crashed in March 2000. The best companies in the best technologies crashed, not just dot-coms. America's most widely held stock Lucent lost 99% of its value. The total loss in that crash was about $5 trillion.

I don't know what today's stocks are worth or what to do with information that doesn't make sense to me, except to warn that it doesn't make sense to me.

Not many good investment options available that I know of for the very few who have money. Sitting on money is a sure loss. Gold is already sky-high. I would only say invest in funds that have good defensive strategies for the next correction.

In his State of the Union speech on February 12, President Barack Obama failed to note that this nation’s 16th President, Abraham Lincoln, was born on the same date 204 years earlier. Perhaps that’s because it was Lincoln who said: “Better to remain silent and be thought a fool than to speak out and remove all doubt.”

Obama removed all doubt about his foolishness — at least in his public statements, though possibly not in regards to his and fellow progressives’ larger agenda — when he told the assembled senators and congressmen that, concerning the state of the economy, “[W]e have cleared away the rubble of crisis, and can say with renewed confidence that the state of our union is stronger.”

No it’s not, and all of the insufferable media cheerleading describing jobs reports as “mostly encouraging” even when the official unemployment rate goes up, and about “A U.S. Economy That’s Strengthened Over [the] Past 4 Years,” won’t change that.

The evidence could take up a book. I’ll limit mine to three areas: employment, student loans, and housing.

A February 1 Investor’s Business Daily editorial, which appeared shortly after the government released its January jobs report, laid out the primary truth about the current job market:

It took an average of just 24 months to regain all the jobs lost in the previous nine recessions. But at the current Obama job-creation pace, it will take about 80 months to regain those lost jobs.

Mort Zuckerman, the liberal editor-in-chief at U.S. News who voted for Obama in 2008, recently wrote the following in a Wall Street Journal column:

After four years America remains in a jobs depression as great as the Great Depression. But the crisis isn’t seen in that light because the country isn’t confronted daily by scenes of despair like the 1930s photographs of bread lines and soup kitchens …

… The jobless today are much less visible than they were in the 1930s because relief is organized differently.

Zuckerman’s subheadline succinctly detailed the point just made: “Twelve million out of work, 48 million on food stamps, 11 million on disability.”

Even those glum statistics don’t adequately capture the entire problem. Per Zuckerman, “The only work that has increased (since the November 2007 peak in nationwide employment) is part-time, and that is because it allows employers to reduce costs through a diminished benefit package or none at all.” Many employers are also clearly doing all they can to keep all but a few key employees from toiling more than 30 hours per week, because ObamaCare will compel them to treat employees who work 30 or more hours as “full-time,” forcing them to either provide mandatory health insurance coverage or pay a fine if they don’t.

Additionally, the jobs that are being obtained are going overwhelmingly to workers who are 55 and older, where employment (again, largely part-time) has grown by 4 million during the past four years. Employment for everyone else during that same period has decreased by almost 3 million. The overall labor force participation rate is back to where it was during the early 1980s, an era when a much higher percentage of spouses voluntarily stayed home to raise their children.

The growing crisis in the government’s student loan programs may be the least publicized trillion-dollar mess in world history. Outstanding balances have grown by $400 billion during just the past four years. During that time, the percentage of loans which is 90 or more days delinquent has skyrocketed from an already awful 8 percent to 11 percent, with most of that increase occurring during just the past few reported quarters.

Why is this happening — and why will the situation probably get much worse? High school grads are going on to college at a record high percentage, but an unprecedented percentage of those who do are ill equipped to succeed in their studies. When they fail, their student loans don’t go away, not even in bankruptcy. If they can get jobs, they probably won’t pay very well. Their student loan payments act as an effective millstone hindering their ability to otherwise advance in life.

The alleged recovery in the housing industry is one of the most heavily publicized economic myths going. We’re supposed to be excited that new home sales are achieving three-years highs, even though today’s level is barely back to where it was during the early-1980s recession, when the U.S. population was 25 percent lower. Today’s level of homebuilding activity is about half of what it should be in a truly healthy economy. Though it’s clear that the housing bubble engineered by government frauds by design Fannie Mae and Freddie Mac and assisted by previous Federal Reserve Chairman Alan Greenspan caused home prices to increase beyond reason during the previous decade, the fact remains that inflation-adjusted home prices are right back where they were in 1990. So much for a home being a great long-term investment.

Uncanny in its inability to learn from past mistakes, risky lending policies and decisions have taken yet another government housing entity, this time the Federal Housing Authority, to the brink of insolvency. Last week, the Government Accountability Office “released a report stating … (that it) is a ‘high risk’ entity.”

Lincoln said something else about foolishness which ties directly into Obama’s State of the Union address: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” As the nation’s Obama-induced economic malaise continues, the roster of those who are being fooled will continue to shrink.

Logged

"You have enemies? Good. That means that you have stood up for something, sometime in your life." - Winston Churchill.

Who knew Nixon was such a tightwad (he managed generally flat spending by cutting defense heavily), that Reagan was so egregiously an overspender, and that H.W. Bush really gave back what used to be called "the peace dividend"?

The biggest surprise of all, of course, is that real, per-capita spending has not just flattened under Barack Obama but has actually declined.

Bush had two wars, including a really large one. Iraq is done, and Afpakia is winding down. Furthermore, the Stimulus 1, 2, 3, of Bush's final year and thoroughly supported by Baraq and the rest ofthe Dems, etc were supposed to be temporary measures and Baraq is fighting tooth and nail to make this "desperate emergency" spending permanent. Then there is the matter of Obama care, which has collected taxes for the last few years but begins only this year. Just wait until this clusterfcuk begins hitting the books! Originally projected at costs of less than $1T my understanding is projected expenditures have already triped to $2.7T

[Crafty already nailed this but I post my thoughts as they were written.]

Surprising because it is both false and misleading.

Covered somewhere in the threads here, these discredited studies put the first 8+ months of Obama's Presidency in the Bush budgets. The federal fiscal year is Oct 1-to the following Sept 30. That kind of budget tracking makes sense in ordinary times, runners left on base, but in this case it included amazing amounts of "emergency spending" before and after inauguration.

The emergency spending between the election and the inauguration was on Bush's watch but in consultation and agreement with President-elect Obama, and also with direct approval of Obama as a de facto leader of the Senat majority that approved the spending. The lie in Washington was that these emergency disbursements were temporary.

What is most dishonest is to put the American Recovery and Reinvestment Act of 2009, the economic stimulus package enacted by the 111th United States Congress with all Democrat majorities in February 2009 and signed into law on February 17, 2009 by President Barack Obama onto George Bush's budget year.

What the flawed accounting accomplishes is to move the increases to Bush and then when President Obama breaks the temporary spending promise in the legislation and makes nearly a trillion a year of emergency spending permanent and then steps up and says he slowed or ended the increases in spending.

Besides screwed up budget years, the red-blue designations for President ignore the makeup of congress - where spending bills originate. The 2008 surge is under a Dem congress. The Clinton spending restraint 1995-2001 was under a Republican congress. The people at Reason should know better but libertarians opposing Republicans and vice versa is part of the problem.

I prefer to tie policies more than people or party or calendar dates to economic results. For tax revenues, it is not what year did Reagan or Bush get elected, but what date did their policies take effect.

The effect of the Nov 2006 election that elevated Pelosi-Reid-Obama-Hillary-Biden-Ellison et al to the majorities in congress was that tax rate cuts could not and would not get renewed, meaning to investors faced higher tax rates going forward. Investment is forward looking on tax rates. A 50+ month employment expansion that began with the full implementation of the Bush tax rate cuts ended at that time and unemployment hit its bottom at 4.7% and headed up. http://www.shadowstats.com/alternate_data/unemployment-charts Unemployment rising means structurally higher spending. In 2008 facing apparent certainty of tax rate increases at year end the financial markets crashed. Whether one buys my economic theory or not, to put a red bar on spending for 2008 and then characterize the budget fights of Obama, Boehner and McConnell as Democratic spending restraint is not just simplistic, but flagrantly deceptive.

Other than that, I like Nick Gillespie, Reason magazine and economist Veronica de Rugy.

[another good point from Crafty is that Obamacare which had zero Republican votes and no dollars to speak of on that congress' record or this President so far, is supposedly unrepealable in divided government, yet will count against the spending record of the next President - trillions over budget. Very unfair. Again, tie the policies, not calendars or names on the door, to the results when you are serious about policy analysis.

The war point is also very good. The 'Bush' wars were arguably a result - partly - of Clinton's intelligence defunding and Clinton not really addressing either of those known threats in his Presidency. From the same chart, was Truman a wild spender in 1945 or did he wrap up a Hitler/FDR/Imperial Japan war?]

I have referenced the phenomenon in France several times: Why France has so many 49 person companies. Of course it is because so many regulations kick in when you hit 50 that new or further employment is thwarted. Now it is the trend in America brought on by Obama and the Dems who preceded him and supported his policies ending exactly what they were trying to cause more of, companies paying full time benefits to more employees:

ObamaCare and the '29ers'How the new mandates are already reducing full-time employment.

Here's a trend you'll be reading more about: part-time "job sharing," not only within firms but across different businesses.

It's already happening across the country at fast-food restaurants, as employers try to avoid being punished by the Affordable Care Act. In some cases we've heard about, a local McDonalds has hired employees to operate the cash register or flip burgers for 20 hours a week and then the workers head to the nearby Burger King BKW +2.39% or Wendy's to log another 20 hours. Other employees take the opposite shifts.

Welcome to the strange new world of small-business hiring under ObamaCare. The law requires firms with 50 or more "full-time equivalent workers" to offer health plans to employees who work more than 30 hours a week. (The law says "equivalent" because two 15 hour a week workers equal one full-time worker.) Employers that pass the 50-employee threshold and don't offer insurance face a $2,000 penalty for each uncovered worker beyond 30 employees. So by hiring the 50th worker, the firm pays a penalty on the previous 20 as well.

These employment cliffs are especially perverse economic incentives. Thousands of employers will face a $40,000 penalty if they dare expand and hire a 50th worker. The law is effectively a $2,000 tax on each additional hire after that, so to move to 60 workers costs $60,000. ... ( more at the link)------------------What could possibly go wrong with these kinds of policies?

In a survey released Thursday, the National Retail Federation (NRF) said some 46 percent of consumers plan to spend less as a result of the payroll tax increase. One-third said they will reduce dining out and one-quarter will spend less on “little luxuries,” like manicures and trips to coffee shops.

“A smaller paycheck due to the fiscal cliff deal early last month, higher gas prices, low consumer confidence and ongoing uncertainty about our nation’s fiscal health is negatively impacting consumers and businesses across the country,” Matthew Shay, president and CEO of the NRF, said in a statement.

Originally enacted in December 2010 to help taxpayers weather the recession and to spur economic activity, the payroll tax cut expired Jan. 1 of this year. The restoration of the tax effectively raised the rate from 4.2 percent in 2012 to 6.2 percent in 2013, shaving 2 percent from consumers’ take-home pay.

That means Americans making $50,000 a year will pay $83 more in taxes each month, almost $1,000 more each year. Those making $75,000 will pay $125 more each month, or $1,500 more each year. As retailers see it, that’s $1,500 less a consumer has to spend on groceries, household goods, and dining out.

Multiply that by 153.6 million people in the labor force and retailers start to panic. According to an estimate by Citigroup, the expiration of the payroll tax cut will move $110 billion out of consumers’ pockets.

For high-end consumers, the payroll tax may not change a thing, and for many middle-income consumers, it will likely result in only a subtle shift. But the impact is most likely to be felt among low-income consumers and the businesses they tend to frequent, like Wal-Mart.

“It’s a big deal,” says Morgan Housley, a macroeconomic analyst with Motley Fool, an online financial education website. “The biggest impact is on lower-income households since the payroll tax is regressive, only applying to the first $113,000 of income. Wealthier households don't feel the same pinch because the tax doesn't hit all of their income. Lower-income households also spend a larger share of their income than wealthier consumers.… Low-income families are in one of the toughest spots they’ve been in since 2009.”

In the second half of 2012, the media, Federal Reserve, and various Governmental economic bean counters engaged in what we call Great Global Rigging of 2012 in an effort to make the US economy look better to help the Obama campaign re-election bid.

Now that the election is over, the ugly economic realities have begun to creep out from where they were swept under the rug. And while the official economic data is bad (a negative GDP in the fourth quarter of 2012), it’s nothing compared to what real-time indicators are showing:

Wal-Mart Stores Inc. (WMT) had the worst sales start to a month in seven years as payroll-tax increases hit shoppers already battling a slow economy, according to internal e-mails obtained by Bloomberg News.

“In case you haven’t seen a sales report these days, February MTD sales are a total disaster,” Jerry Murray, Wal- Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. “The worst start to a month I have seen in my ~7 years with the company.”

Wal-Mart and discounters such as Family Dollar Stores Inc (FDO). are bracing for a rise in the payroll tax to take a bigger bite from the paychecks of shoppers already dealing with elevated unemployment. The world’s largest retailer’s struggles come after executives expected a strong start to February because of the Super Bowl, milder weather and paycheck cycles, according to the minutes of a Feb. 1 officers meeting Bloomberg obtained.

Here’s Wal-Mart, the single largest retailer in the US, reporting that it just had the single worst start to any month in over seven years. Indeed, the company missed just revenues expectations as families adjust to a “reduced paycheck and increased gas prices.

The increased gas prices is most important. Inflation is already seeping into the system in a big way. Indeed, if you account for real inflation (not the Fed’s phony CPI measure), the US economy contracted by over 1% last quarter.

Make no mistake, we are heading into a stagflationary collapse. The time to prepare is NOW before stocks“get it.”

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from the economy taking a massive downturn, potentially taking down the financial system with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of dollars into financial system right now trying to stop this from happening..Read more at http://investmentwatchblog.com/the-wal-mart-indicator-were-heading-for-a-stagflationary-disaster/

Said in regard to the president being able to pass money from one government entity to another, basically overriding any congressional oversight that existed in regards to budgets that had been passed, all in an effort to grant Obama the ability to funnel funds to keep whatever agencies that Obama deems "important," up and operating.

Said in regard to the president being able to pass money from one government entity to another, basically overriding any congressional oversight that existed in regards to budgets that had been passed, all in an effort to grant Obama the ability to funnel funds to keep whatever agencies that Obama deems "important," up and operating.

------

I think, in that proposal, the idea is that the administration can move money within a department to its greatest need, not say move defense money to food stamps etc. It wouldn't end oversight; they would haul in the cabinet secretaries to testify as to where money is being spent and why. It would weaken the argument that the appropriating branch was starving the elderly, when it turns out the administration was spending the money on bureaucrats.

Allotting money and then holding people accountable sounds like private sector management. I share the concern that they should not be giving up their constitutional responsibility.

Economists, media and politicians often dwell on quintiles and percentiles of earners without noting that the people who make up these groups changes everyday, every year and every decade. We hear that the rich this... and the top 1% that... but bogus stats lead to wrong conclusions because they do not adjust or account for the movement of the people between the groups. If you follow the people, the conclusion is the opposite of just following the brackets. ------------

"Most working Americans who were initially in the bottom 20 percent of income-earners, rise out of that bottom 20 percent. More of them end up in the top 20 percent than remain in the bottom 20 percent.

People who were initially in the bottom 20 percent in income have had the highest rate of increase in their incomes, while those who were initially in the top 20 percent have had the lowest. This is the direct opposite of the pattern found when following income brackets over time, rather than following individual people.

Most of the media publicize what is happening to the statistical brackets -- especially that "top one percent" -- rather than what is happening to individual people.

I have tried hard to describe how the principles of supply side economics center around all the things we can logically do to grow a healthy economy. To that, people yawn and move on. Perhaps more persuasive is the opposite - identify all the things you could do to weaken a healthy economy, then look at the anti-growth and prosperity agenda being implemented here in the U.S.

...there are plenty of ways to slow down even an inherently strong economy. History offers plenty of examples. But as more contemporary models, take your pick of successfully ruined economies — the Venezuelan, the Cuban, the North Korean, the Greek, the Italian, the Portuguese, or pretty much any from Mediterranean Africa to the Cape of Good Hope. There are certain commonalities about why and how they fail. Let’s review some of them.

Government

The state can never be too big. Ensure that it is unaccountable and intrusive, in constant need of more money and more targets to regulate. The more government, the more people are shielded from the capital-creating, free-market system. Think the DMV or TSA, not Apple. The point is for an employee to spend each labor hour with less oversight, while regulating or hampering profit-making, rather than competing with like kind to create material wealth. Regulatory bodies are a two-fer: the more federal, union employees, the more regulations to hamper the private sector. The more federal mandates, like new health-care requirements and financial reporting, the less employers profit and the fewer employees they can hire. Washington should be a growth city, absolutely immune from the downturn elsewhere, a sort of huge and growing octopus head with decaying tentacles. State jobs should be redefined as something partisan — whose expansion is noble and helps the helpless, and whose contraction is evil and the design of a bitter and aging white private-sector class.

On the other end of the equation, ensuring 50 million on food stamps, putting over 80,000 a month on Social Security disability insurance, and extending unemployment insurance to tens of millions all remind the jobless that life is not too bad (thanks to the government), and certainly a lot better than working at a “low-paid” job that equates to giving up federal support. To paraphrase Paul Krugman, the more and the longer the jobless receive, the less likely they are to take chances looking for a job. That too might be again a good thing if you wish to slow down the economy. In general, even Arnold Toynbee, a man of the Left, acknowledged that the greedy drive of the scrambling private sector was not as pernicious to civilizations as the collective ennui produced by vast cadres of lethargic and unaccountable public “servants” doing supposedly noble work.

The Law

To ensure capriciousness and unpredictability for both suspect employers and investors, make the law malleable, even unpredictable from day to day, in the style of an Argentina or Venezuela. Redefine the law as what is deemed socially useful. For federally subsidized bankrupt auto companies, creditors should be paid back on the basis not of contractual law, but of nobility — why borrow to give a rich man a return on his superfluous investment, when a retired auto worker might have to pay a higher health care premium? Boeing wants to open a non-union plant in South Carolina? Have the NLRB try to stop it (and illegally staff the NLRB with recess appointments). Illegal aliens? They are neither illegal nor aliens, as federal immigration law is itself a capricious construct. Does the Senate really have to present a budget? Do presidents need to meet budget deadlines? Who said there is a Defense of Marriage Act?

What law says that gays cannot serve overtly in the military or women cannot fight at the front — some reactionary construct? The point is to restore a simulacrum of popular sovereignty: the law is what 51% of the people are perceived by technocrats to want on any given day. I would hammer away at legal fictions like the very idea of borrowing and paying back loans and debts. Soon the popular culture would respond in kind, and run ads constantly on radio, TV, and the Internet in a way rare just a generation ago: how to renegotiate IRS debt, how to renegotiate mortgages, how to renegotiate credit card debt, and how to renegotiate student loan debt.

The man who owes $50,000 has been taken advantage of; the man who is owed $50,000 already has enough without being paid back. The aim is to create a general climate where when one borrows, one does not necessarily have to the pay back the full sum for a variety of legitimate considerations. The more bubbles — housing, student loan, credit card — the more avenues for government intervention and relief. Do all that and perhaps lending itself might slow down, again not a bad thing for our purposes. The debtor, not the lender, is the true American success, as our collective debt underscores.

Cynicism

Don’t forget the value of cynicism in weakening an economy. It is a critical tool in sowing distrust and fatalism, as in “Why try, when it doesn’t matter anyway?” or “Why should I follow the rules, when they don’t?” Greece, for example, is a cynical country to the core and one can see where such endemic distrust got them: a successfully ruined economy.

I would lecture about the evils of federal bailouts to Wall Street fat cats who then take million-dollar bonuses for mediocre performance — and then appoint a Treasury secretary who did just that. I would trash offshore accounts as something amoral and unpatriotic — and then appoint a Treasury secretary who did just that. I would lecture about paying your fair share and hiking taxes — and then appoint a Treasury secretary who avoided paying the income taxes he owed. I would sermonize on the evils of the revolving door — and then appoint as my top financial officials those who for a lifetime have gone into the White House, out to Wall Street, and back into the White House. Again, if “they” do that, why then do “we” need to pay our taxes or follow ethical behavior? The cynical mindset is a valuable tool in recreating a Greece or Italy. Indeed, almost any cynicism is a good thing: so why not praise federal financing of campaigns and then be the first to refuse it, or campaign on the evils of the Bush anti-terrorism protocol and then embrace or expand almost all of it?

Top Down, Not Bottom Up

Leveling must go in one direction, not two. To ensure equality, the public schools should lower standards so that all are the same. The more who need remediation upon entering college, the more likely the curriculum will have to adjust to level the playing field, and the less skilled will emerge the average graduate. The more that those with “Cadillac” insurance plans can have procedures rationed, the more others will see their own options expanded.

The world is a finite system, a pie with only so many slices. There is no middle class, just rich and poor. For each F student, an A student stole the former’s resources. I would invest not in honor students, but in remedial ones. Grades and test scores should count little for college admission; life “experiences” and community service far better would ensure the presence of mediocre students. The aim again is not to turn out graduates with expertise or knowledge who build a strong economy, but to graduate students, brand them with degrees, and ensure they are invested in a similar ideology of redistribution. If California — of Caltech and Stanford repute — can dumb down its public schools to rank 48th or 49th in the nation in math or English testing, then there is hope for the country at large.

The War of Words

Prosperity is always relative, never absolute. A car, a house, or a job is not to be judged on its own merits, but in comparison to someone else who has one better. If today’s Kias are better than a Mercedes of 20 years ago, it matters little: they are not as nice as someone else’s Mercedes of today. Britain in the postwar 1940s discovered the power of envy and what it can do to slow down ill-won prosperity.

From Plato to Marx to Tocqueville, philosophical minds, for both good and bad reasons, have always appreciated that human nature is attracted to the idea of enforced equality, to such a degree that most would rather be poor and the same, than better off with some far better off. Let’s give them that chance!

I would try to redefine the entire capitalist notion of profit, getting ahead, and being rich or successful as something arbitrary. Better yet, it should be analogous to cheating, proof of unfairness, or incurring general shame. The point is to make profit-making synonymous with failure; and poverty something inherently noble. Compensation should be seen as capricious, never based on logical requisites like education, knowledge, experience, level of responsibility, hard work, personal comportment, or even the less predictable such as health, luck, fate, and chance. Redefine rich and poor to emphasize the fact that one making $20,000 a year and another $200,000 is unfair, period — and to be corrected by a fair, all-knowing, and compassionate government. I would talk always of poverty and hunger, never of the epidemic of obesity or the nation’s collective youth glued to iPhones.

Sometimes, sloppy language is critical: jumble together “millionaires” with those worth 1,000 times more, and you earn the force-multiplying evil “millionaires and billionaires.” The word “fair” is critical: as in “pay your fair share.” But “patriotic” is even better, as in “unpatriotic” past presidents who run up debt, and “patriotic” present egalitarians who borrow in four years what used to take eight.

I would also redefine entire professions in negative terms: bankers are “fat cats”; the rich “junket” to Las Vegas; CEOs are “corporate jet owners”; doctors lop off limbs and yank out tonsils to pile up profits. Material wealth alone defines us. Mitt Romney is a man with lots of money, a big house with an elevator, a wife with horses. Who cares what he did with the Olympics or as governor?

I could continue, but you get the picture: the point is to slow down the capitalists by making them look over their shoulders, to hamper the grasping small businesses by prepping a psychological battlefield in which the rich deserve higher taxes and regulations to atone for their sins. If lots of those who once made $400,000 a year no longer do, is that not progress? Did they not at last realize that they had made enough money and that it was no longer the time to profit? My goal would be to convince the pizza-parlor owner that after 12 hours on the job, he was taking away money from his noble customers and had a duty to pay more in taxes and cut his profits for those more noble who could not afford his crust. But there would be one exception: fat cats can buy exemption by loudly supporting the president, serving on his jobs council, or investing in green energy. In other words, send the message that getting rich building a Solyndra is noble in a way Exxon is not. A Warren Buffett or George Soros is not a “billionaire” but a “philanthropist,” whose profits are channeled in the right direction. That’s an important message to send if one wants to warp an economy — suggesting that the rich can pay proper homage and thereby win exemption from being culpably rich.

Everywhere a War

The rich/poor dichotomy is valuable, but perhaps not enough in itself to harm the economy. Political stasis is also critical. Think the blues and greens in the hippodrome, fighting over everything from religion and civil service to class, ethnicity, and sports. And what better way to seed acrimony and to ensure constant bickering than unleashing a series of domestic wars? The camouflaged assault-weapon killers who hide behind the 2nd Amendment are at war with millions of innocent children. Even female celebrities and lawyers are under attack by misogynists and chauvinists, who won’t pay for their birth control. Latinos are targeted by nativists. The latter even hunt them down at ice-cream parlors. Blacks are back to near slavery as racist conservatives want to put them back in chains. Greens battle nobly against the polluters, gays against the homophobes. Muslims are demonized as terrorists by racists and bigots.

The point would be to introduce so many divisive fault lines that no one can much agree on anything — other than a common enemy. Worry over unemployment, slow or nonexistent growth, and massive debt gives way to more pressing issues like gay marriage and banning semi-automatic assault weapons. Distraction is valuable: who cares that the real unemployment rate is way over 10% if the Keystone pipeline will destroy the Nebraska aquifer or Jim Crow is back on election day? A “jobless recovery” and the “misery index” can become artifacts of a distant era.

Deficits

I would borrow as much money as possible, to the point of making the word “trillion” synonymous with the old “billion,” and “billion” now not more than a mere “million.” On its coins, a fading Rome pressed bronze over a thin silver core; we have done better with the Fed. Think of all the ways in which deficits are good: they spread the wealth through greater entitlements; they eventually require higher taxes from the wealthy; they usually lead to inflation that erodes wrongly accumulated wealth. For every trillion borrowed, there is a greater likelihood that the deserving will receive more federal largess and the undeserving will have to pay for it — and the country itself will slow down and smell the roses. Is it not far preferable for the government to print money than the cumbersome private sector to create it?

Interest

Zero interest is as important as sky-high interest. Thus, 1% on passbook accounts can be as valuable in stalling the economy as 15%. If there is no gain in stored wealth, why seek to store it? If owing is better than being owed, why work to create capital? A good way to ensure inflation is to ensure zero interest. The many who have no money deserve the use of free money and the few who have it have no need to profit from it. Again, if the state employee’s pension pays out more in annual revenue than the multi-millionaire’s passbook account, is not that a distortion worth institutionalizing? The point would be to guide the retiree into real estate, precious metals, or the stock market, anywhere with real risk to beat his .5% passbook return. Or better yet, do away with the idea of the retiree altogether, as the poor fool keeps working to earn what his savings won’t — thereby providing an added benefit of keeping his would-be younger replacements jobless.

Energy

I would try to find a way to discourage private gas and oil production through more regulation and cancellation of projects like the Keystone pipeline: keep the country paying steep import fees and keep it vulnerable to Persian Gulf oil. New technologies like fracking and horizontal drilling are to be declared de facto synonymous with pollution and destroying the environment. How can energy “skyrocket” or gas reach “European levels” — that alone will ensure a cooler planet or government- and union-run mass transit — if freelancers can find hoards of natural gas on land the government can’t touch? I would also borrow billions to subsidize wind and solar power. The more costly the kilowatt, the more expensive energy might slow down human activity and finally stop the rat race.

Success is Failure

Finally, I would double down. The more higher taxes, class warfare, bigger government, borrowing, zero interest, and political stasis began to slow down the economy, the more I would demand more of them all, and declare that the economy is expanding and growing. Again, the key to fine tuning a properly moribund economy is to stay the course — and learn to redefine failure as success.

Published at Investors Business Daily, Cato Institute, Real Clear Politics, and DBMA Public Forum.

Several European countries, including Cyprus, have been mired in economic stagnation or decline for five years or more.

Yet other countries in Asia and Latin America have flourished. What are the weakest economies doing wrong? What are the strongest doing right?

Economist Jim O’Neill coined the acronym BRIC in 2001 to refer to four economies which showed great potential then and now — Brazil, Russia, India and China. More recently, he added four more promising MIST economies — Mexico, Indonesia, South Korea and Turkey.

In mid-2008, The Economist magazine drew a sharp contrast between the booming BRIC economies and four feeble PIGS — Portugal, Italy, Greece and Spain. By 2010, after Ireland and Great Britain bailed out their banks, that unkind acronym was stretched to PIIGGS.

All PIIGGS have two things in common. First of all, government spending grew dramatically — from an average of 43.2% of GDP in 2007 to 52.6% by 2010.

Spending was modestly trimmed by 2012 in a few cases, yet the ratio of spending to GDP still remained 3 to 6 percentage points higher than it had been in 2007.

This sad story was repeated in Cyprus, where government spending soared from less than 34% of the economy in 1995 to 47% in 2010.

Despite this explosive growth of government spending among the PIIGGS, economist Paul Krugman’s End the Depression Now! somehow attributes southern Europe’s slump to “frantic, savage attempts to slash spending.”

In a recent New York Times column, Krugman suggested that Ireland suffers from grossly insufficient government spending, and contrasted Ireland’s alleged penny-pinching with “the true economic miracle that is Iceland … (which) thanks to its embrace of unorthodox policies, has almost fully recovered.”

What actually happened is that government spending in Ireland soared to 66.1% of GDP in 2010 — up from 36.8% in 2007 — when the government shocked the markets by bailing out the banks in September 2010. The budget deficit suddenly spiked to 30.9% of GDP. Irish bonds collapsed.

In Iceland, which didn’t throw taxpayer money at the banks, government spending was slashed from 57.6% of GDP in 2008 to 46.5% in 2012. The deficit fell from 12.9% of GDP to 3.4%. The economy began to recover in 2011.

Iceland’s economic boost from fiscal frugality was neither unorthodox nor unique. After all, the U.S. economy boomed in the late 1990s when federal spending was cut from 22.3% of GDP in 1991 to 18.2% in 2000. In Canada, total federal and provincial spending was deeply slashed from 53.2% of GDP in 1992 to 39.2% in 2007 with only salubrious effects.

When Krugman and others describe the recent European spending spree as “austerity,” that begs the key question: Austerity for whom? The PIIGGS imposed no austerity at all on the public sector in the past five years.

Government spending on bailouts, subsidies, grants, salaries and entitlements commands a much larger share of these economies than it did just a few years ago. European austerity has been focused on the private sector — namely, taxpayers with high incomes.

That is the second thing the PIIGGS have in common. The highest income tax rate was recently increased in every one of the troubled PIIGGS except Italy (where it was already too high at 43%). The top tax rate was hiked from 40 to 46.5% in Portugal, from 41 to 48% in Ireland, from 40 to 45% in Greece, from 40 to 50% in Great Britain, and from 48 to 52% in Spain.

Apparently envious of the PIIGGS, France even flirted with a 75% tax.

It is enlightening to compare the depressing performance of these tax-and-spend countries to the rapidly-expanding BRIC (Brazil, Russia, India and China) and MIST economies (Mexico, Indonesia, South Korea and Turkey).

Government spending is frugal in these countries, averaging 32.1% of GDP in the BRICs and 27.4% for the MIST group.

Rather than raising top tax rates, all but one of the BRIC and MIST countries slashed their highest individual income tax rates in half; sometimes lower. Brazil cut the top tax rate from 55 to 27.5%. Russia replaced income tax rates up to 60% with a 13% flat tax. India cut the top tax rate to 30% from 60%. Similarly, the top tax rate was cut from 55 to 30% in Mexico, from 50 to 30% in Indonesia, from 89 to 38% in South Korea, and from 75 to 35% in Turkey.

In China, statutory income tax rates can still reach 45% on paper, but that is only for high salaries and is widely evaded. Investment income is subject to a flat tax of 20%, the corporate tax is 15-25%, and China’s extremely low payroll tax adds almost nothing to labor costs.

Lower tax rates and faster economic growth in these countries didn’t mean bigger budget deficits. On the contrary, only one of of the eight MIST and BRIC countries (India) has a significant budget deficit.

In short, the world economy has become divided into two groups: (1) sickly PIIGGS with chronic fiscal crises and (2) booming BRIC and MIST economies with modest government spending, lower tax rates and vigorous growth of both the economy and tax receipts.

Unfortunately, the U.S. has lately been drifting nearer the PIIGGS camp. The highest tax rates were just increased and federal spending is nearly 23% of GDP — way up from the 19.2% average of 1997-2007.

If U.S. legislators hope for better results—for both the economy and the budget—they must shun the failed policies of the PIIGGS and instead embrace the proven policies of the rapidly-growing BRIC and MIST economies.

What works, these successful economies discovered, is (1) to prevent government spending from growing faster than the private economy that supports it, and (2) to reduce rather than increase the highest, most damaging tax rates.

Alan Reynolds, a Cato Institute senior fellow, is the author of "Income and Wealth."

This article appeared in Investor’s Business Daily on April 3, 2013. It is reprinted with permission from the Cato Institute.

The Global Failure of KeynesianismPosted By David P. Goldman On April 5, 2013

The world’s central banks are playing leapfrog, each trying to ease faster than the other. Since 2008, the world’s central banks have expanded their balance sheets by a staggering $4.7 trillion. The Federal Reserve’s quantitative easing forced the hand of the Bank of Japan, which earlier this week announced that it would double its rate of securities buying, pushing the 10-year Japanese government bond yield down to an all-time low of 0.43%. The Fed’s easing reduced the U.S. dollar’s exchange rate and boosted U.S. exports, largely at the expense of Japan and Europe. With some of Japan’s top export names at risk of bankruptcy, Japan responded with aggressive easing to reduce the value of the yen. Europe is the big loser, and the European Central Bank this week indicated that it might follow suit.

The central banks have been working straight from the playbook that John Maynard Keynes devised in the 1930s, and it has been a dismal failure. They are competing for a stagnant volume of world trade. Quantitative easing has shifted the pain around the world, but it hasn’t restored growth. Once again, the world has to learn the hard way that Keynesian economics fails. It’s disheartening that no major political party anywhere in the world has articulated a clear alternative.

Many conservatives bought into the market consensus, namely that Fed easing would boost asset prices, asset prices would boost consumption, and higher consumption would drive the overall economy. There was an element of self-consolation in this credulity: if the U.S. economy was indeed recovering, it “explains” the Obama victory last November and takes the Republican leadership off the hook for a devastating defeat. The alternative view — that Obama crushed Romney despite a very weak economy — puts the blame on Republican leaders. The fact is that Obama wasn’t lucky. We did a bad job.

Today’s reports from the Labor Department showed the smallest increase in employment in 10 months at just 88,000 and, more importantly, the lowest labor force participation rate since 1979 at just 63.9%. Americans are dropping out of the labor force because they can’t find work. The Shadow Government Statistics website puts the true unemployment rate (the proportion of Americans who could be working but aren’t) at 23%.

Conservatives (along with the market consensus) gave too much credibility to the supposed recuperative powers of the U.S. economy, and put too much faith in the Federal Reserve’s Keynesian machinations. The Fed has bought nearly $3 trillion of Treasury and mortgage-backed securities since the 2008 crisis, accelerating its purchases in recent months, in order to suppress long-term yields and (especially) the yield on risky securities.

That’s boosted the stock market, but–as we have seen from a week of disappointing economic data–not economic growth. As I wrote in Barron’s March 13, the Fed’s largesse has encouraged investors to lever up existing assets with cheap credit, but not to invest in new plant and equipment:

Optimism about U.S. consumers drove employment gains in February. Evidently the wealth effect from rising equity and home prices has spilled over into employment. About two-thirds of the employment growth came in construction and consumer-related services. This is good for stocks. But you don’t need a growth story to explain the improvement in equities. Leverage is driving stocks. The Fed is persuading businesses to re-lever balance sheets but not to break ground on new plants. Cheap leverage favors existing assets. The recovery remains lopsided with investment lagging badly.

Usually the stock market anticipates economic growth, but under the extraordinary regime of quantitative easing, equity prices reflect the cheapness of leverage more than expected earnings growth. That’s why low-volatility sectors with bond-like cash flows (consumer durables, consumer discretionary, utilities) have led the market while capital-goods producers like Cisco and Caterpillar have lagged.

Even the very modest growth the U.S. has managed to sustain during the past two years depends to a great extent on export growth. That might be the biggest contribution the Fed has made to growth; quantitative easing has helped keep the dollar cheap and that has been helpful to exports. The Fed did not target the dollar — Ben Bernanke simply does not think that way. The Fed, rather, targeted the risk composition of investor portfolios (negative short-term rates and long rates depressed by Fed purchases of longer Treasuries are supposed to force investors to invest in brick and mortar). It didn’t work out that way, to be sure; investors are buying existing brick and mortar with cheap leverage rather than investing in new plant and equipment.

Japan, meanwhile, has gotten the other end of the stick. As the yen rose, Japan’s exports collapsed. Top Japanese names like Sony and Panasonic saw their stock price crater and their cost of credit soar. This forced the Bank of Japan to act aggressively and force down the yen exchange rate.

Should we fear a catastrophic outcome, as former OMB director David Stockman claims? That is extremely unlikely. There is one great source of strength in the U.S. economy, namely the energy sector. With the United States poised to overtake Saudi Arabia as the world’s largest oil producer by 2020, the U.S. current account deficit is likely to settle in the 2% range, down from the 6% range during the mid-2000s. That will enhance America’s capacity to borrow overseas by reducing the risk of future dollar depreciation. The prospective improvement in America’s current account gives the Federal Reserve and the Obama administration a great deal more slack.

But it is fanciful to expect that energy alone will drive a U.S. economic boom. It’s great for North Dakota and a few other states, and it’s good for the current account balance and the U.S. dollar. We’ve already had a massive decline in natural gas prices and a massive increase in the proportion of our energy coming from natural gas, and the effect on overall economic output is small.

No magic bullet — not the Fed, not the energy boom, not the modest improvement in home prices- — is going to get the U.S. economy out of what Nobel Prize laureate Edmund Phelps calls a “structural slump.” This isn’t a new depression. It’s not even a double-dip recession. It’s just a permanent headache.

The economy is stagnating, not recovering, and Americans are hurting. Republican leaders are playing small ball against the administration over budgetary issues. Getting out of the structural slump will require radical changes. It will probably take a drastic reduction on taxes on capital income, including corporate profits, capital gains, interest, and dividends to get investment going again. Slashing the defense budget, which has been the great driver of technological advances since the Second World War, is devastatingly wrong-headed by economic as well as national security criteria. Obamacare is killing small business. The National Federation of Independent Business’ Optimism Index remains at recession lows. The biggest negatives cited by small business owners are taxes and government regulation.

The Republican Party needs to articulate the kind of broad vision for prosperity founded on free markets and American strength that we had under Reagan. Waiting for the pendulum to swing back in our direction just isn’t good enough.

First, one chart and one quote from Crafty's post yesterday in this thread, "Global Failure of Keynesianism':"the Fed’s largesse has encouraged investors to lever up existing assets with cheap credit, but not to invest in new plant and equipment"

Yes, that is exactly right, quite an honest assessment of both the economy and the market.------

"Prime-aged people are working less, and we don’t know why,” said Betsey Stevenson, a labor economist and associate professor at the University of Michigan.-----

My wish would be for the people who don't know why our economy is tanking to stop voting and for Labor Economist Professors at our greatest institutions of higher learning that don't know what ails the economy to seriously consider other work.

Helpful information for the clueless: Capital employs labor. Return on investment, after tax, motivates capital to build new enterprises that employ people. Roadblocks and penalties cause capital to go elsewhere or sit idle. Printing money does not produce additional capital any more than funny house mirrors make you fatter or thinner. No new investment capital is generated with a zero savings rate. Compounding interest is one of the most powerful forces in the universe, also unemployed. A rational person tucking away savings to compound at zero interest is either frustrated or extinct. The reason interests rates are perniciously set at zero is because the Fed is trying to fix a non-monetary problem with a monetary 'solution'. Trying to loosen a screw by hitting it with a hammer.

The Foundation"Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands." --Thomas JeffersonGovernment

Income Redistribution Day "It's Tax Day. Most Americans dread Tax Day, and for good reasons. Beyond the huge tab Americans pay to the government, the tax code is so complex that it's difficult to figure out what we owe to the IRS. This is a pain for taxpayers and a huge drain on the economy. According to the federal Taxpayer Advocate in its 2012 report, Americans' cost of complying with today's complex tax code totaled $168 billion in 2010. That's almost as large as the impact of the Obama tax hikes in fiscal year 2013, and twice the size of sequestration this year. It takes taxpayers 6.1 billion hours -- or 51 hours per household -- to complete all the required filings. That's more than six full eight-hour working days per household! The compliance burden comes on top of the direct financial cost of $3.5 trillion in federal spending. In 2012, Washington collected $20,000 in taxes for every household in America. But Washington spent nearly $30,000 per household. ... 45 percent or almost half of all spending went toward paying for Social Security and health care entitlements. ... Growing government spending threatens current and future taxpayers with higher taxes. Congress should reduce spending and prevent any more tax increases. Congress also needs to reform the tax code so it is less of a burden on the American people. Tax day is a real drag, but it doesn't have to be this bad." --Heritage Foundation's Romina Boccia and Curtis DubayPost Your OpinionRe: The Left"Maybe it's a measure of progressives' refusal to look back, to always move 'forward.' Otherwise, they should be celebrating right now. In fact, President Obama and fellow modern progressives/liberals should be ecstatic all this year, rejoicing over the centenary of something so fundamental to their ideology, to their core goals of government, to their sense of economic and social justice -- to what Obama once called 'redistributive change.' And what is this celebratory thing to the progressive mind? It is the progressive income tax. This year it turns 100. ... For ... Obama and allies, a federal income tax based on graduated or progressive rates embodies and enables government's primary 'job' and 'purpose.' They embrace a progressive tax for the chief intention of wealth redistribution, which, in turn, allows for income leveling, income 'equality,' and for government to do the myriad things that progressives ever-increasingly want government to do. ... Here in 2013, 100 years henceforth, the wealthiest Americans ... will be paying more in taxes this year than any time in the last 30 years. For progressives, this is justice. But it is also bittersweet: As progressives know deep inside, it still isn't enough. For them, it's never enough. ... For progressives, getting it implemented was a huge triumph. Their success in making it a permanent part of the American landscape is a more stunning achievement still." --professor Paul KengorHelp The Patriot Post TodayWe need your help to make budget. Unlike the government, however, we depend on the voluntary contributions of people like you to keep The Patriot Post coming each week."I'm one of those 'limited resources' supporters, but some things are worth the sacrifice. Some things *have* to be kept alive regardless of sacrifice. The Patriot Post is in my top five." --CharlesHelp us reverse our nation's march toward insolvency and set the conservative agenda for years to come. Support our Patriots' Day campaign with a donation of any size today!

For the Record"[T]he BLS says that in 2012, on average, only 114,809,000 Americans worked in full-time ... jobs. Of those 114,809,000 full-time workers, 17,629,000 worked full-time for government. That means there were only 97,180,000 people working full-time in the private sector. If you add the 71,700,000 who enrolled in Medicaid last year to the 17,629,000 who worked full-time for the government, that gives you a combined 82,329,000 who were enrolled in Medicaid or who worked full-time for government. That means that for every person who either enrolled in Medicaid or worked full-time for the government, there were only about 1.2 full-time workers in the private sector. And those 1.2 full-time private-sector workers who were supporting the Americans on Medicaid or the government's full-time payroll included however many full-time private-sector workers occupied the approximately 14.5 million private-sector health care jobs. We have not gotten there yet, but we are fast approaching the point where the combination of people who work full-time in health care, and who work full-time for the government, and who are enrolled in Medicaid outnumber the people who work full-time in the private sector in non-health-care jobs. When Obamacare falters from the great costs it is about to impose on this nation, some will declare that the answer is to fully nationalize the health care system. Had that been done in March 2013, 26.9 percent of American jobs would have been government jobs." --columnist Terence JeffreyOpinion in Brief"Here's the number to keep in mind: $763 billion. If enacted, Barack Obama's latest budget would mean that in just ten years, interest payments alone on the national debt would begin pushing the trillion-dollar mark: $763 billion a year by 2023. That may be a rosy estimate: It assumes that interest rates, currently near historic lows, do not rise a great deal over the next ten years as the Treasury continues to pile up new debt. If interest rates do climb a bit higher ... then those interest payments easily could be more than $1 trillion a year. But let's stay with that $763 billion a year for now. How much money is that? It is more money than the federal government spent on anything in 2011: The largest single spending item in 2011, Social Security, amounted to only $725 billion. ... If you believe the welfare state is too expensive now, or that we spend too much money on the military, consider that President Obama proposes to spend more than that merely making interest payments on all the debt his budget would help pile up. How much debt? How about $8.5 trillion in new debt over the next decade, for a total of more than $25 trillion in national debt. At 6 percent interest, it would cost us $1.5 trillion a year to service that debt: about the size of President Clinton's entire proposed budget for 1995." --National Review's Kevin D. Williamson

Insight"Socialist governments traditionally do make a financial mess. They always run out of other people's money. It's quite a characteristic of them. They then start to nationalize everything, and people just do not like more and more nationalization, and they're now trying to control everything by other means." --British Prime Minister Margaret Thatcher (1925-2013)Essential Liberty"[Margaret] Thatcher believed in capitalism and freedom, in rewarding risk-takers and encouraging entrepreneurs, in low taxes and private ownership. She loved her country, she cherished Anglo-American civilization, and she despised appeasement. She had a visceral abhorrence of communism, and rejected the accommodationists who saw Soviet ascendancy -- and the West's slow decline -- as a permanent fact of life. 'The essence of Thatcherism was to oppose the status quo and bet on freedom,' The Economist noted in its obituary this week. 'She thought nations could become great only if individuals were set free. Her struggles had a theme: the right of individuals to run their own lives, as free as possible from the micromanagement of the state.' That was the essence of Reaganism too. ... It can be perversely tempting at times to imagine that our problems are too ingrained to fix, that the erosion is too far gone to reverse, that our enemies are too strong to defeat. But history is not predetermined. 'Malaise' can give way to 'morning in America.' The 'sick man of Europe' can be restored to health. Besides everything else they accomplished, Thatcher and Reagan remind us that things can change for the better, and great leaders can change them. It wasn't foreordained that Britain and America would revive from the despondency of the 1970s. But voters in both countries elected leaders of conviction, not consensus. That made an extraordinary difference, and achieved a world of good." --columnist Jeff JacobyThe Gipper"I know too that many of you seriously believe that a nuclear freeze would further the cause of peace. But a freeze now would make us less, not more, secure and would raise, not reduce, the risks of war. It would be largely unverifiable and would seriously undercut our negotiations on arms reduction. It would reward the Soviets for their massive military buildup while preventing us from modernizing our aging and increasingly vulnerable forces. With their present margin of superiority, why should they agree to arms reductions knowing that we were prohibited from catching up?" --Ronald ReaganCulture"A basketball coach who shoves and curses at his players merits constant coverage by a media also transfixed by Newtown. But a Philadelphia doctor on trial for murdering a woman and seven babies? It's ignored. Those who get their news from the three major networks have probably not heard of Dr. Kermit Gosnell, now on trial in Philadelphia, charged with seven counts of first-degree murder and one count of third-degree murder for killing seven babies who survived abortions and a woman who died after a botched pain-killer injection. Everybody has heard of Mike Rice, the disgraced former Rutgers basketball coach who was fired after video surfaced of him shoving, kicking and yelling at his players, throwing basketballs at them and -- most damning -- using 'homophobic slurs.' According to the Media Research Center, in one week Rice received 41 minutes, 26 seconds of air time on ABC, CBS and NBC in 36 separate news stories. Gosnell received zero coverage. So much for the media adage that 'if it bleeds, it leads.' ... If Dr. Gosnell had walked into a nursery and shot seven infants with an AR-15, it would be national news and the subject of presidential hand-wringing." --Investor's Business Daily

James Cash Penney did not start with a lot of money. He was in fact raised in poverty and began his retail career as just a one-third partner in a store in a little town in Wyoming, at a time when Sears and Montgomery Ward were unchallenged giants of nationwide retailing. Yet his insights into the changing conditions of retailing eventually forced these giants into doing things his way, on pain of extinction. . . . In a later era, a clerk in a J.C. Penney store named Sam Walton would learn retailing from the ground up and then put his knowledge and insights to work in his own store, which would eventually expand to become the Wal-Mart chain, with sales larger than those of Sears and J.C. Penney combined.

One of the great handicaps of economies run by political authorities, whether under medieval mercantilism or modern communism, is that insights which arise among the masses have no such powerful leverage as to force those in authority to change the way they do things.

At a House Appropriations subcommittee hearing on Wednesday morning, Chairman Harold Rogers blasted the FAA for not providing sufficient information about the looming cuts.

“Not a word, not a breath. You didn’t forewarn us that this was coming,” the Kentucky Republican said. “You didn’t ask advice about how we should handle it. You didn’t inform the Congress of this sequester impact and what you plan to do about it. In fact, the entire administration has done the same thing.”

However, Congress did receive formal warning from Transportation Secretary Ray LaHood as early as February. From the White House briefing room, LaHood said he was trying to “wake up” Republicans to the fact that more than 100 regional airport towers would close and passengers would see delays at major airports once furloughs took effect.

Earlier that month, LaHood also wrote a letter to Senate Appropriations Chairwoman Barbara A. Mikulski, D-Md., noting that significant furloughs would be applied to safety workers and air traffic controllers. Some lawmakers actually criticized administration officials for fear-mongering about the potential consequences of the budget sequester at the time warnings such as LaHood’s were made.